Roth IRAs for Your Child
It may seem odd to think about starting a retirement account for a child, but it’s worth considering. A Roth IRA can be a great option for a young person who has many years before retirement, because qualified withdrawals of contributions and their associated earnings can be withdrawn completely tax-free!
As soon as your child has earned income (think baby-sitting, dog-sitting, shoveling snow or a part-time job), they are eligible to contribute to a Roth IRA. Parents who are self-employed can employ their child and place them on payroll at a reasonable wage for the work performed.
If a child’s self-employment income is used to fund a Roth IRA, a tax return should be filed so that there is a record of the income.
For children under 18, the Roth account would have to be set up as a custodial account which can be turned over to the child when they turn 18.
The maximum that can contributed to a Roth IRA is their earned income not exceeding $6,000 for 2022 or $6,500 for 2023.
Parents may even choose to gift funds to their child for Roth IRA contributions (as long as the maximum contribution is not exceeded.)
Opening a Roth IRA for your young working child may help them learn to save and take advantage of the compounding of returns for a longer period of time.
Honorine Campisi, CPA
